Cerberus Capital Management is planning a new fund to invest in commercial mortgage-backed securities, including the riskiest tranches of the derivatives.

The firm sought to sell the fund and strategy at a dinner in Manhattan last month for prospective investors. Cerberus said it believes that the CMBS Opportunities Fund could produce returns as high as 35%, The Wall Street Journal reports.

U.S. CMBS issuance is roaring back after five years of muted activity in the wake of the financial crisis. The first quarter alone saw almost $23 billion in issuance, almost half the total issuance from last year. In an investor presentation, Cerberus noted that "bad habits are returning."

In spite of that, and the risks, Cerberus told investors that it believes it can profit from CMBS. The new fund would buy both subordinated CMBS while simultaneously shorting the market with indices.

Cerberus' existing commercial-mortgage bond portfolio returned 47% last year and is up 11% this year.

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